But I Have Whole Life Insurance To Pay For My Funeral…
Why is this NOT a good idea? I recently helped a gentleman who had, in good faith, taken out a whole life insurance policy to pay for his final expenses. So far, he has paid in over $18,000 (yes that is correct!). If he retained the policy, he would be required to pay the rest of his life. At age 81, that could be ten or more years. At $101 per month, or $1,212 per year, several thousand more dollars in premiums could be paid. And, did I mention that since he has paid since 1999, the cash value of the his insurance policy is a whopping $2,100? Additionally, when he dies, the death benefit pay-out is $5,000.
What else would you purchase and pay in excess of $18,000 to receive $5,000? Nothing I can think of! The math makes no sense! Whole life insurance has its place and time, but pre-planning for final arrangements is NOT one of the reasons to purchase whole life insurance.
Additionally, the beneficiary of a whole life policy could voluntarily choose NOT to use the proceeds of the policy to pay for the funeral service. This could create family conflict, which should be avoided at all costs.
The best way to pre-pay for final arrangements is an Irrevocable Funeral Trust. You receive interest instead of pay interest. It is protected from Medicaid spend-down, and details for final arrangements should be funded appropriately. It does not protect your loved ones financially if you pre-plan details but do not provide appropriate funding. The funeral home who provides the service is paid first. Any residual is paid to your named beneficiary.
Paying a funeral home directly is NOT the best choice. Too many things can go wrong with that plan! For many reasons, your choice of funeral home can change, either by choice or by default (i.e. if you die while traveling).
If you have a whole life policy, let us assist you with a 1035 Exchange to create an Irrevocable Funeral Trust. Your premiums will stop, you will start receiving interest instead of paying interest, your money will be protected and the final arrangements of your choice will be appropriately funded. Call us today for assistance!